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Express Scripts Inc. (ESRX)
Express Scripts buys WellPoint's NextRx
In a sea of shake-ups, downsizes, and bankruptcies, some companies are choosing to acquire other businesses to either prevent the destruction of one company or create a company that is able to withstand the harsh conditions that a downturn in the economy inflicts on some companies. Express Scripts announced on Monday that is has decided to acquire a subsidiary of WellPoint Inc. (WLP: Charts, News, Offers) in a deal valued at $4.7 billion. This amount will be paid in cash and up to $1.4 billion in common stock. What were a couple of the reasons behind the company's decision to acquire a subsidiary of WellPoint Inc.? Will the deal be beneficial for the both parties involved? How will this deal change the structure of Express Scripts?
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Acquisition and merger announcements have become a common occurrence over the last year as companies try their best to cope with the global economic recession. Some companies choose to acquire an entire company and some companies choose to acquire certain parts. Express Scripts has chosen to do the latter. WellPoint Inc. currently owns and operates NextRX, which is a premier provider of pharmacy benefit management services nationally. NextRX was founded in 1993 and currently manages more than 265 million adjusted prescriptions annually. One of the main reasons for the acquisition is to expand the company's presence in a market that it has always wanted to expand in. By expanding, pharmacy benefit managers, such as Express Scripts, would gain clout when negotiating prices with drug makers for clients, typically big corporations and their employees. The acquisition will result in more than 32 million additional customers being added to Express Scripts, which will result in the company providing prescription services to almost 82 million individuals.
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Another reason behind the decision to purchase NextRX is the possible earnings potential for Express Scripts. Since the acquisition will result in the company managing 750 million prescriptions and position the company as one of the leaders in the industry, it is almost expected that the company's quarterly earnings will improve. During morning trading, shares of Express Scripts rose 3.5 percent to $50.90 before the open of the Nasdaq Stock Market. The deal will also help Express Script compete with CVS (CVS: Charts, News, Offers) after the company lost its battle to acquire Caremark Pharmacy Services two and a half years ago. WellPoint has also positioned itself to benefit greatly from this deal. The transaction may boost WellPoint's net income, which shrank in every quarter last year from the same period the year before. This deal will also provide the company with cash needed to pay down debt and maintain its current workforce. WellPoint just announced this past January that it was cutting its workforce by 1,500 to decrease operating costs.
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This deal appears to be the best option for both companies involved. Les Funtleyder, an analyst with Miller Tabak & Co., said “Both parties win here because Express Scripts gets the chance to grow that it missed with Caremark, and WellPoint gets cash from an asset that wasn't essential to its core business.” The deal with definitely change the structure of the company as it takes on a large surge in the amount of customers that it will be serving. The growth potential for Express Scripts is unlimited after the economy improves and the health industry resumes its growth. WellPoint Inc. appears to be optimistic that its future is much brighter now that it has unloaded a business that was preventing the company from achieving the results that it desires. Shares of WellPoint rose 8.9 percent to $43.94 before the start of the session.
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